by Hearing scheduled for Wednesday
PONTOTOC, Miss. — Southern Motion reworked its $6 million bankruptcy loan to reduce its cost, but the unsecured creditors committee has concerns. The amendment came one week after the committee filed an objection to what it said is a last-minute financing switch by the debtor, a change that the committee said left little time for due diligence.
The debtor states that the new terms are better “for Southern Motion and its estate.” The company filed for Chapter 11 protection on Aug. 31. A hearing on the revised DIP financing and the committee’s objections is scheduled for 10 a.m. tomorrow (Wednesday), in the U.S. Bankruptcy Court for the Northern District of Mississippi.
In an amended motion filed Friday, the company said Porter Capital Corp. had agreed to switch its DIP loan from a factoring arrangement into a conventional revolving credit line. Southern Motion puts the loan’s effective annual cost at 18%, a significant decrease from the previous 24%. But, the new loan does not address all of the creditors’ objections.
Profitability warning
Southern Motion, which employs about 645 people, belongs to the U.S. furniture business that Hong Kong-listed Man Wah Holdings acquired in December 2025. Separately, Man Wah warned on Oct. 12 that its half-year profit could fall 70%-90% compared to the same period last year, citing in part goodwill write-downs tied to the U.S. business it acquired, according to a Man Wah filing with the Hong Kong stock exchange.
For the first six months of the last fiscal year, through Sept. 30, 2025, Man Wah earned about HK$1.1 billion, or approximately $146 million. A 70%-90% slide would result in profitability of HK$115 million to HK$344 million, or about $15 million to $44 million.
Affirming that its core revenues remain stable, Man Wah cited several reasons for the expected profitability dip: Rising chemical raw material costs since the conflict in the Middle East broke out, fierce industry competition and price increases that lagged behind the upticks in costs. Separately, the U.S. business that owns Southern Motion lost money because of raw material costs and weak demand.
Man Wah management “will continue to implement various measures to hedge against the impact of fluctuations in raw material prices, optimize global production footprint, press ahead with the restructuring of the acquired U.S. business, strictly control all operating costs and enhance operational efficiency,” the company stated in its filing, which Claude translated to English from Chinese.
Southern Motion’s previous deal had Porter Capital effectively buying the manufacturer’s customer invoices at a discount, which the company called “both expensive” and “logistically difficult to implement” in its day-to-day billing. The revised deal is an ordinary credit line that instead borrows against those invoices.
The interest rate goes up, but the discount fee disappears and the origination fee drops by two-thirds, among other changes. On a $6 million line of credit, the lower origination fee alone saves $120,000.
Objection!
Four days before the original loan was set for final approval, the committee of unsecured creditors filed a limited objection, stating that while it supports the company’s need for cash to keep operating, the committee learned less than 48 hours before its objection deadline that the company would seek a different loan. This new loan was described only in a one-page, non-binding term sheet. It added that some information it had requested on Sept. 25, including the details behind the company’s budget, had still not arrived.
Specifically, the committee objected to liens on unencumbered assets, including real estate in Union County, Mississippi, an element of the revised loan agreement, as well. In addition, the committee requested $450,000 for professional services, including attorneys’ fees, but the debtor’s budget sets aside only $125,000. Also still in question is Southern Motion’s exit strategy, which the committee has warned is needed to avoid the loan becoming a “bridge to nowhere,” according to the objection.
Before filing for Chapter 11, Southern Motion sought rescue financing from “numerous commercial lenders and its parent company,” according to a declaration by David Baker, the company’s chief restructuring officer and managing partner of Aurora Management Partners. Porter Capital was the only entity willing to lend, the debtor’s motion states. But, Southern Motion kept shopping. Two other lenders were identified, and one offered a conventional $6 million credit line on better terms with the same collateral as Porter Capital. Porter Capital countered with the revised package the court will consider Wednesday morning.
The company argues that staying with Porter avoids “the delay, additional diligence, and transaction costs” of switching lenders, according to the amended motion. The court approved the original factoring deal on an interim basis on Sept. 11. Tomorrow’s hearing could result in the revised deal’s interim approval.
Where’s the ATM?
Baker said in his declaration that Southern Motion entered bankruptcy in an “extremely precarious cash position” because of inflation, high rent costs and industry headwinds. Without the loan, he said, it could not cover operating costs or the costs of the bankruptcy itself.
An updated 13-week budget attached to the revised loan filing shows just how much the company might need the loan. From Oct. 17 through Jan. 15, 2027, Southern Motion projects a negative cash flow of about $7 million. To cover this shortfall, it expects to draw $5.7 million of the $6 million credit line by mid-January.
The company starts the period with about $1.5 million in cash and projects about $194,000 to remain at the end of the period. In other words, without the loan, the cash could run out in weeks rather than months. Schedules filed yesterday (Monday) list about $48.3 million in assets and $71.8 million in liabilities. Roughly $58.5 million of that debt is owed within the corporate family: $33 million to subsidiary Fusion Furniture and $25.5 million to Man Wah’s Hong Kong trading arm, a loan dated Dec. 18, 2025, the month of the acquisition.
In addition, the filing values the company’s only owned real estate, a New Albany property in Union County, at $3.03 million. That is the property the creditors committee wants kept free of Porter Capital’s liens.
Man Wah acquired Southern Motion and Fusion Furniture from Gainline Capital Partners in December last year for $32 million, plus approximately $27 million in retired debt, pushing the price tag to approximately $59 million. Southern Motion re-branded as SoMo Home in mid-June. Precipitating the bankruptcy filing was a $6.2 million dispute with the landlord for six of its eight production facilities, according to a statement from Man Wah.
The landlord involved in the dispute is STORE SPE Southern Motion 2018-1, LLC, a legal entity created by STORE Capital to hold the lease. STORE Capital is a large American real estate investment trust, or REIT, based in Scottsdale, Arizona, according to the SEC. Southern Motion signed a long-term lease with the entity in 2018 and faced an Aug. 31 eviction that the bankruptcy filing paused, according to Southern Motion’s filings.
Founded in 2015, Gainline Capital Partners is a private equity firm based in Stamford, Connecticut. Headquartered in Hong Kong, Man Wah Holdings was founded in 1992 and is now one of the world’s largest furniture producers. Guy Lipscomb and Larry Todd started up Southern Motion in 1996. Fusion Furniture launched in 2009.
Southern Motion acquired Fusion Furniture in June 2018 to complement its own motion-furniture line with Fusion’s stationary sofas, as well as accent chairs and ottomans.
STORE Capital was acquired in 2023 by GIC, a global institutional investor, in tandem with funds managed by Oak Street for approximately $14 billion, according to its website. STORE is an acronym for Single Tenant Operational Real Estate.
Man Wah has scheduled a board meeting for Nov. 16 to review and announce its unaudited interim results for first six months of its fiscal year, the results that spurred the profit warning issued on Oct. 12.
The Southern Motion bankruptcy case docket is here.
